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LightSquared could get FCC approval to use spectrum by year-end, witness says

A witness for LightSquared told a U.S. Bankruptcy Court hearing that the company will likely get FCC approval to use its wireless spectrum by 2015, and that it may buy more airwaves.

"I believe they will allow the spectrum to be used terrestrially," Christopher Rogers, a member of the independent special committee specializing in airwave issues, told U.S. Bankruptcy Judge Shelley Chapman in Manhattan on Wednesday. The hearing could last days or weeks as Chapman seeks to rule and make a final determination on LightSquared's plans to exit bankruptcy protection.

According to Forbes, LightSquared's newest plan to emerge from bankruptcy would repay creditors in full and leave Harbinger Capital Partners, the hedge fund run by Philip Falcone that controls LightSquared, with a significant equity stake. Unlike earlier plans, the new one does not require that the FCC approve LightSquared's proposed spectrum use. However, getting that approval is critical since it is what largely will determine whether LightSquared has any long-term viability.

LightSquared entered bankruptcy protection in May 2012 after the FCC revoked its conditional license to operate because of unresolved concerns that its planned LTE-based network would interfere with GPS receivers.

To mitigate those interference concerns, LightSquared in the fall of 2012 submitted to the FCC a request to combine the 5 MHz it uses for satellite service at 1670-1675 MHz with frequencies in the 1675-1680 MHz band, currently used by National Oceanographic and Atmospheric Administration weather balloons. The company would share the NOAA spectrum rather than gain exclusive rights to it. LightSquared would then agree not to deploy a terrestrial network in the 1545-55MHz downlink part of the L-Band.

According to Bloomberg, former FCC Commissioner Robert McDowell, who is now a visiting fellow at the Hudson Institute, testified that he believes 30 MHz of LightSquared's spectrum will be approved for use by the end of 2015, and an additional 10 MHz within seven years. LightSquared hired McDowell as a consultant for LightSquared on FCC issues.

McDowell said that in making that judgment he used public information, talked with LightSquared executives and relied on his experience at the FCC.

While getting FCC approval is not a prerequisite to exit bankruptcy for LightSquared now, it could determine how quickly LightSquared will repay its creditors, including Dish Network (NASDAQ: DISH) Chairman Charlie Ergen.

Dish withdrew a $2.2 billion bid to get control of LightSquared's spectrum. However, Ergen purchased about $1 billion worth of LightSquared's senior loan debt, and LightSquared sued Ergen over his acquisition of LightSquared debt. LightSquared argued that Ergen bought the beleaguered company's debt on behalf of Dish and not himself, and was using the debt as a way to control LightSquared's reorganization. Such purchases are illegal under LightSquared's credit agreement, which prohibits competitors from buying the debt, the company has said. Dish and Ergen argued he made the debt purchases for himself. Chapman still needs to rule on that case.

LightSquared's latest restructuring would subordinate Ergen's debt claims on the premise that they are not valid senior secured claims, Reuters noted, and would give Ergen a long-term note while paying other lenders in cash.

Ergen's lawyers pushed back and said that was just a scheme to make sure Harbinger retained equity in LightSquared, but Rogers on Wednesday said the note would still eventually pay Ergen in full. "We thought that was justified in this case," Rogers said.

In any case, as Reuters noted, LightSquared's whole plan likely rests mostly on how Ergen is treated, since if Chapman rules that Ergen acquired LightSquared debt in a fair manner, she is not likely to approve a reorganization plan that treats him differently than other lenders. If that happens, LightSquared could be squeezed even more, since its bankruptcy funding is expected to run out sometime in early or mid-April.